Navigating IRA rules can involve a little math

QI am about to turn 70. My spouse is younger than me. We both have IRAs that we are trying to leave alone as much as possible. I realize I need to begin withdrawing from my IRA by the end of this year. Is there a minimum amount one must withdraw from the IRA? Also, we want to do a kitchen remodel for about $20,000. Should we take it out of the IRA, or would it be a better idea to go for a loan?

QI am about to turn 70. My spouse is younger than me. We both have IRAs that we are trying to leave alone as much as possible. I realize I need to begin withdrawing from my IRA by the end of this year. Is there a minimum amount one must withdraw from the IRA? Also, we want to do a kitchen remodel for about $20,000. Should we take it out of the IRA, or would it be a better idea to go for a loan?

CASEY

AThe IRA in its various forms is a prime example of how a laudable goal -- promoting retirement savings -- eventually turns into a Byzantine labyrinth of rules and regulations over time. The IRA is complicated. It's an area where "it depends" isn't an evasion but a necessity. For example, it depends on your tax rate. It depends on your savings. It depends on your spouse's retirement plans. You get the point. Hopefully I can offer some general guidance for thinking through the issue.

I have two resources to recommend. The first is a new edition of the Nolo.com publication "IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out'' by John Suttle and Twila Slesnick. The other is Henry "Bud" Hebeler's website Analyzenow.com. He offers a number of terrific software programs and calculators that will help you make an informed decision.

Now, some thoughts on your question. As you say, you must make at least the required minimum distribution (RMD) the year you turn 70 1/2. (There is no required distribution with Roth IRAs during the lifetime of the owner, by the way. You cannot use distributions from your Roth IRA to satisfy the required distribution for your traditional IRAs.)

Your required distribution is calculated by adding up everything you have in your traditional IRAs on Dec. 31 of the previous year and dividing that sum by your life expectancy. The IRS publishes the life expectancy tables. (You can look at the IRS required distribution worksheet at www.irs.gov/publications/p590/ar02.html.)

Of course, you can take out more than the minimum required sum if you like.

What about the trade-off between borrowing versus taking the money out of your IRA? I am normally skittish about debt, but sometimes you can come out ahead using OPM -- Other People's Money. I think the answer lies in figuring out where you come out ahead after taking taxes into account.

Here is an illustration of what might go into deciding on the right course. Let's assume you have $50,000 in your IRA. Your required minimum distribution would be about $2,000 a year. If, instead of just taking the distribution, you used additional IRA dollars to pay for the remodel you would have to increase the amount you take out to cover taxes.

In contrast, perhaps you could take the required distribution each year and use the money to pay the debt service on a home equity line of credit.

"With interest rates at near record lows they could probably get a HELOC [home equity line of credit] and repay it with the RMDs saving more in tax savings than it costs them in interest," said Ted Contag, a certified financial planner and senior financial consultant at Thrivent Financial for Lutherans. However, Contag emphasizes that the actual answer hinges on the real numbers.

Chris Farrell is economics editor for American Public Media's weekly "Marketplace Money" show and author of "The New Frugality." He answers reader questions on most Sundays. Send questions to cfarrell@mpr.org and put "Your Money" in the subject line.